Final Agency Determination: FAD-149

Subject: Request dated November 18, 2011, requesting a Final Agency Determination for the 2011 crop year for all crops with a 2011 crop year contract change date on or after April 30, 2010, regarding the interpretation of section 2(b)(6)(i) of the Common Crop Insurance Policy Basic Provisions (Basic Provisions), published at 7 C.F.R. 457.8. This request is pursuant to 7 C.F.R. part 400, subpart X.

Background:

Section 2(b)(6)(i) of the Basic Provisions states in relevant part:

2. Life of Policy, Cancellation, and Termination.

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(b) With respect to your application for insurance:

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(6) With respect to persons with a substantial beneficial interest in you:

(i) The insurance coverage for all crops included on your application will be reduced proportionately by the percentage interest in you of persons with a substantial beneficial interest in you (presumed to be 50 percent for spouses of individuals) if the SSNs or EINs of such persons are included in your application, the SSNs or EINs are correct, and the persons with a substantial beneficial interest in you are ineligible for insurance;

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7 C.F.R § 400.656 states in relevant part:

400.681 Effect of Ineligibility

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(c) The spouse and minor children of an individual are considered to be the same as the individual for purposes of this subpart except that:

(1) The spouse who was actively engaged in farming in a separate farming operation will be a separate person with respect to the separate farming operation so long as that operation remains separate and distinct from any other farming operation conducted by the other spouse (Transfers in interest in a farming operation from one spouse to another will not be considered as a separate farming operation.);

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Section 8L(1) of the 2011 Ineligible Tracking System (ITS) Handbook states in relevant part:

8. Effect of Ineligibility

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L. The spouse and minor children of an individual are considered to be the same as the individual except:

(1) A spouse may be considered a separate person if the spouse has a separate and distinct farming operation, as specified in FCIC - 18010, Crop Insurance Handbook, Sec. 5. Transfers of interest between spouses within the farming operation will not be considered a separate farming operation.

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Interpretation Submitted

The requestor interprets section 2(b)(6)(i) to reasonably lead the reader to conclude that the ineligibility of one spouse will serve only to reduce, but not wholly eliminate, the coverage that may be afforded to the other spouse. In particular, this section could be construed to mean that if one spouse is ineligible to participate in the Federal crop insurance program, the other spouse could still obtain coverage - albeit at a reduced level (presumed to be 50 percent) if a social security number (SSN) for the ineligible spouse is identified on the application; and the identified SSN is correct.

The requestor states the reading of this section is in conflict with other Risk Management Agency (RMA) pronouncements. For example, section 1 of the 2011 Basic Provisions states the following as part of its definition of a substantial beneficial interest (SBI):

…The spouse of any individual applicant or individual insured will be presumed to have a substantial beneficial interest in the applicant or insured unless the spouses can prove they are legally separated or otherwise legally separate under the applicable State dissolution of marriage laws...

Other RMA directives, including a Federal regulation, also equate one spouse with the other for eligibility purposes. The set of Federal regulations that govern ineligibility and the RMA's ITS are codified at 7 C.F.R. part 400, subpart U.

The requestor states virtually identical language is found in the RMA's ITS Handbook. The Federal regulation codified at 7 C.F.R. § 400.681(c) and section 8L(1) of the ITS Handbook lead the reader to conclude that unless the noted exception is applicable (i.e., separate and distinct farming operation), the ineligibility of one spouse results in the ineligibility of the other spouse. This interpretation is seemingly at odds with that derived from section 2(b)(6)(i) of the 2011 Basic Provisions. Moreover, the rule that a codified regulation takes precedence over a general procedure is not helpful in this instance as there are two conflicting regulations at issue: 7 C.F.R. 457.8, section 2(b)(6)(i) and 7 C.F.R. 400.681(c).

The requestor interprets the administrative history of section 2(b)(6) of the Basic Provisions similarly provides little guidance. RMA published its intention to revise the Basic Provisions in the Federal Register on July 14, 2006. Specifically, the proposed policy was published at 71 F.R. 40194. Page 40215 describes the proposed revisions to section 2 of the Basic Provisions in part as follows:

"If an incorrect number is not corrected for a person with a substantial beneficial interest in the insured producer, insurance coverage will be reduced by the percentage the person had in the insured producer, or, if the person is determined to be ineligible, no coverage will be provided. FCIC is also proposing to clarify the reduction in share that will occur if a spouse's identification number is not provided as a substantial beneficial interest because there have been questions regarding what the amount of share is presumed to be. FCIC has clarified that spouses are presumed to have a 50 percent share in the spouse's share."

The wording employed by the RMA in the Federal Register seems to say:

1. If the SSN of the spouse (SBI holder) is incorrect or not included on the other spouse's application and this error is not appropriately corrected, "coverage will be reduced by the percentage interest that person had in the insured producer";
2. If the SSN of the spouse (SBI holder) is determined to be ineligible, "no coverage will be provided"; and
3. The interest of one spouse in the other is presumed to be 50 percent.

Based on its previous experience with ineligibility issues, including certification of individuals to the ITS list, the requestor interprets section 2(b)(6)(i) of the Basic Provisions is, despite its ambiguity, if one spouse is ineligible to participate in the Federal crop insurance program, the other spouse is likewise ineligible unless the second spouse falls within the noted exception of having a separate and distinct farming operation.

For example, a husband is ineligible to participate in the Federal crop insurance program due to a delinquent debt, an applicable drug conviction, suspension, disbarment, or any other reason - including voluntary debarment or an agreement by the husband to be suspended or debarred. As a result, the wife is also ineligible to participate unless she can prove that she maintains a separate and distinct farming operation.

As noted above, the requestor bases its interpretation on its previous experience with eligibility issues. Nonetheless, the policy and procedure described herein are sufficiently at odds with one another to necessitate a formal and binding interpretation from the RMA.

Final Agency Determination

The Federal Crop Insurance Corporation (FCIC) agrees with the requestor's interpretation that when one spouse is ineligible to participate in the Federal crop insurance program, the other spouse is likewise ineligible unless the second spouse meets eligibility requirements and has separate and distinct farming operation within in the meaning provided by the policy and the procedures.

FCIC also agrees that if the SSN of the spouse (SBI holder) is incorrect or not included on the other spouse's application and this error is not appropriately corrected, coverage will be reduced by the percentage interest that person had in the insured producer. However, if the SSN of the spouse (SBI holder) is determined to be ineligible, no coverage will be provided under the policy for either spouse unless the exception provided below is met.

The definition of "substantial beneficial interest" provides that a spouse of an individual has a substantial beneficial interest of at least 50 percent in the policyholder unless the spouses can prove they are legally separated or otherwise legally separate under the applicable State dissolution of marriage laws. Subpart U further provides that such spouse of an individual is considered to be the same as the individual for crop insurance purposes, unless the spouse is actively engaged in a separate farming operation. With respect to the separate farming operation, this spouse will be considered a separate person so long as that operation remains separate and distinct from any other farming operation conducted by the other spouse. If the spouse does not meet this exception, they will be considered to have a substantial beneficial interest in the other spouse (policyholder) and will be ineligible if the policyholder is determined to be ineligible.

Finally, it is noted the requestor asked that the Final Agency Determination provide that the decision is applicable to the 2011 crop year for all crops with a 2011 crop year contract change date on or after April 30, 2010. Even though 7 C.F.R. part 400, subpart X states requesters may seek interpretations of those provisions of the Act and the regulations promulgated thereunder that are in effect for the crop year in which the request under this subpart is being made and the three previous crop years, to the extent the language in the provisions interpreted is identical to the language applicable for any other crop year, the same interpretation can be applied to such other crop year. It is the responsibility of the person seeking to use the published interpretation for a different crop year to ensure that the language of the provisions is identical. Even minor language changes can have an effect on the interpretation.

In accordance with 7 C.F.R. § 400.765 (c), this Final Agency Determination is binding on all participants in the Federal crop insurance program for the 2011 and succeeding crop years the policy provisions are in effect. Any appeal of this decision must be in accordance with 7 C.F.R. § 400.768(g).